QUIZ 2- perfect markets PT2

Question 1

define a shut down

Answer 1

refers to a short run decision not to produce anything during a specific period of time BECAUSE of current market conditions.

Question 2

a firm chooses to shut down if ?

Answer 2

the price of the good is LESS than the average variable cost of production

Question 3

even if the firm shuts down it it loses money because?

Answer 3

when the firm shuts down it eliminates its average VARIABLE costs but NOT its FIXED costs.

Question 4

define sunk cost

Answer 4

a cost that has already been committed and can not be recovered

because nothing can be done, you should ignore them when making decisions

Question 5

define exit

Answer 5

refers to a long run decision to leave the market

when it’s Price < Average total costs or REV < Total costs

Question 6

a firm enters the market when

Answer 6

Price > Average total costs

Question 7

a firm maximizes the their profit when

Answer 7

Price = Marginal cost

Question 8

decisions about entry and exit in a market of this type depend on the ______ facing the owners of exiting or entering

Answer 8

incentives

Question 9

if firms already in the market are profitable THEN? (4)

Answer 9

1. new firms will hv an incentive to enter the market
2. the entry will expand the # of firms
3. increase quantity of goods supplied
4. drive down prices & profits